Sunday, September 25, 2022

Codere Online Latin America Exposure Positive Catalyst, Says Analyst

Shares of Codere Online (NASDAQ:CDRO) are trading slightly lower Friday. That comes a day after the sportsbook operator reported its first set of quarterly results as a freestanding public company. But at least one analyst remains constructive on the name.

Stifel analyst Jeffrey Stantial reiterates a “buy” rating on the first internet gaming entity from Latin America to publicly trade in the US in a note to clients. He has an $8 price target on the shares, implying a nearly 60 percent upside from current levels.

Shares have continued to trade off since our recent launch report, we expect largely reflecting the recent macro-driven risk-off tape. While volatility could persist, we believe our initial buy thesis remains firmly intact with Q4 results suggesting some, albeit very preliminary, progress towards strategic market share targets,” said the analyst.

In the last three months of 2021, the operator was hindered by regulatory headwinds in Spain but was able to offset some of that weakness with successful ramp-ups in Colombia and Mexico. Codere Online debuted as a publicly traded company on Dec. 1, 2021, following a merger with a special purpose acquisition company (SPAC), DD3 Acquisition Corp. II.

Loving Latin America

The operator is formerly known as Grupo Codere — Codere Online’s parent — is undergoing a dramatic alteration in Spain. Now known as Nueva Codere, the company sold some assets in Argentina and spun off the online business as part of its makeover.

As Stantial notes, Codere Online’s fourth-quarter net gaming revenue (NGR) missed consensus estimates, with a 9% miss in Spain acting as the primary drag on those results. Management blamed the Spain miss on lingering COVID-19 restrictions in the Eurozone’s fourth-largest economy and a tighter regulatory regime.

“This was mostly offset by solid return on marketing investment in Latin America helping to drive growth,” said Stantial.

Codere Online is operational in Argentina, Colombia, Mexico, and Panama in that region. Likely owing to home country bias, many US investors aren’t aware of the wagering opportunity set in Latin America. But online gaming there notched an eight-year compound annual growth rate of about 20% in Codere’s core markets.

Analysts believe the combined online gross gaming revenue (GGR) in just Colombia and Mexico could eventually swell to $700 million.

Inside Spain Issues

The devil is in the details, and that applies to Codere Online’s fourth-quarter issues in Spain, where its iGaming and online sports betting handles increased on a year-over-year basis.

Stantial points out that the bottom line struggles for operators in that country may be a symptom of regulations mandating reduced sign-up bonuses, which forced gaming companies to compete on price. That created a more favorable environment for bettors. It’s possible that the tide could turn favor over to Codere Online and its rivals.

“Moreover, should this be true, we could see potential tailwinds to Q1 wagering levels in the region, as players re-deploy above-average winnings into incremental play,” concludes Stantial.

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